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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________________

Commission File Number 1-12434
M/I HOMES, INC.
(Exact name of registrant as specified in it charter)

| Ohio |  | 31-1210837 |
| (State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) |

4131 Worth Avenue, Suite 500, Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)
(614) 418-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Shares, par value $.01 | MHO | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes | ☒ |  | No | ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes | ☒ |  | No | ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | ☒ |  | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ |  | Smaller reporting company | ☐ |
|  |  |  | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. q

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes | ☐ |  | No | ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, par value $.01 per share: 27,829,416 shares outstanding as of April 26, 2023.

M/I HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1. | FINANCIAL INFORMATION |
| Item 1. | M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements |
|  | Unaudited Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 | 3
|  | Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 | 4
|  | Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2023 and 2022 | 5
|  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 | 6
|  | Notes to Unaudited Condensed Consolidated Financial Statements | 7
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39
| Item 4. | Controls and Procedures | 41
PART II. | OTHER INFORMATION |
| Item 1. | Legal Proceedings | 41
| Item 1A. | Risk Factors | 41
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41
| Item 3. | Defaults Upon Senior Securities | 41
| Item 4. | Mine Safety Disclosures | 41
| Item 5. | Other Information | 41
| Item 6. | Exhibits | 42
Signatures |  |  | 43

2

M/I HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par values) |  | March 31, 2023 |  | December 31, 2022
|  | (unaudited) |  |
ASSETS: |  |  |  |
Cash, cash equivalents and restricted cash |  | $ | 542,564 |  |  | $ | 311,542 |
Mortgage loans held for sale |  | 226,629 |  |  | 242,539 |
Inventory |  | 2,657,409 |  |  | 2,828,602 |
Property and equipment - net |  | 37,419 |  |  | 37,446 |
Investment in joint venture arrangements |  | 49,031 |  |  | 51,554 |
Operating lease right-of-use assets |  | 59,787 |  |  | 60,416 |
Deferred income tax asset |  | 18,019 |  |  | 18,019 |
Goodwill |  | 16,400 |  |  | 16,400 |
Other assets |  | 155,112 |  |  | 148,405 |
TOTAL ASSETS |  | $ | 3,762,370 |  |  | $ | 3,714,923 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |
LIABILITIES: |  |  |  |
Accounts payable |  | $ | 208,426 |  |  | $ | 228,597 |
Customer deposits |  | 97,800 |  |  | 93,118 |
Operating lease liabilities |  | 60,763 |  |  | 61,310 |
Other liabilities |  | 249,055 |  |  | 276,217 |
Community development district obligations |  | 27,060 |  |  | 29,701 |
Obligation for consolidated inventory not owned |  | 19,648 |  |  | 17,048 |
Notes payable bank - financial services operations |  | 223,618 |  |  | 245,741 |
Senior notes due 2028 - net |  | 396,298 |  |  | 396,105 |
Senior notes due 2030 - net |  | 296,487 |  |  | 296,361 |
TOTAL LIABILITIES |  | $ | 1,579,155 |  |  | $ | 1,644,198 |
Commitments and contingencies (Note 6) |  | — |  |  | — |
SHAREHOLDERS’ EQUITY: |  |  |  |
Common shares - $0.01 par value; authorized 58,000,000 shares at both March 31, 2023 and December 31, 2022; issued 30,137,141 shares at both March 31, 2023 and December 31, 2022 |  | $ | 301 |  |  | $ | 301 |
Additional paid-in capital |  | 349,988 |  |  | 352,639 |
Retained earnings |  | 1,939,049 |  |  | 1,835,983 |
Treasury shares - at cost - 2,421,525 and 2,697,058 shares at March 31, 2023 and December 31, 2022, respectively |  | (106,123) |  |  | (118,198) |
TOTAL SHAREHOLDERS’ EQUITY |  | $ | 2,183,215 |  |  | $ | 2,070,725 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 3,762,370 |  |  | $ | 3,714,923 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
3

M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

| Three Months Ended March 31, |  |
(In thousands, except per share amounts) | 2023 |  | 2022 |  |  |  |
Revenue | $ | 1,000,530 |  |  | $ | 860,811 |  |  |  |  |
Costs and expenses: |  |  |  |  |  |  |
Land and housing | 765,904 |  |  | 647,702 |  |  |  |  |
General and administrative | 50,960 |  |  | 48,783 |  |  |  |  |
Selling | 49,080 |  |  | 41,421 |  |  |  |  |
Other income | (7) |  |  | (16) |  |  |  |  |
Interest (income) expense | (1,389) |  |  | 671 |  |  |  |  |
Total costs and expenses | $ | 864,548 |  |  | $ | 738,561 |  |  |  |  |
Income before income taxes | 135,982 |  |  | 122,250 |  |  |  |  |
Provision for income taxes | 32,916 |  |  | 30,411 |  |  |  |  |
Net income | $ | 103,066 |  |  | $ | 91,839 |  |  |  |  |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 3.73 |  |  | $ | 3.23 |  |  |  |  |
Diluted | $ | 3.64 |  |  | $ | 3.16 |  |  |  |  |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 27,602 |  |  | 28,424 |  |  |  |  |
Diluted | 28,305 |  |  | 29,072 |  |  |  |  |

See Notes to Unaudited Condensed Consolidated Financial Statements.
4

M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

| Three Months Ended March 31, 2023

| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at December 31, 2022 | 27,440,083 |  |  | $ | 301 |  |  | $ | 352,639 |  |  | $ | 1,835,983 |  |  | $ | (118,198) |  |  | $ | 2,070,725 |
Net income | — |  |  | — |  |  | — |  |  | 103,066 |  |  | — |  |  | 103,066 |
Stock options exercised | 218,066 |  |  | — |  |  | (3,118) |  |  | — |  |  | 9,557 |  |  | 6,439 |
Stock-based compensation expense | — |  |  | — |  |  | 2,023 |  |  | — |  |  | — |  |  | 2,023 |
Deferral of executive and director compensation | — |  |  | — |  |  | 962 |  |  | — |  |  | — |  |  | 962 |
Executive and director deferred compensation distributions | 57,467 |  |  | — |  |  | (2,518) |  |  | — |  |  | 2,518 |  |  | — |
Balance at March 31, 2023 | 27,715,616 |  |  | $ | 301 |  |  | $ | 349,988 |  |  | $ | 1,939,049 |  |  | $ | (106,123) |  |  | $ | 2,183,215 |

| Three Months Ended March 31, 2022

| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at December 31, 2021 | 28,499,630 |  |  | $ | 301 |  |  | $ | 347,452 |  |  | $ | 1,345,321 |  |  | $ | (68,890) |  |  | $ | 1,624,184 |
Net income | — |  |  | — |  |  | — |  |  | 91,839 |  |  | — |  |  | 91,839 |
Stock options exercised | 8,600 |  |  | — |  |  | (164) |  |  | — |  |  | 370 |  |  | 206 |
Stock-based compensation expense | — |  |  | — |  |  | 1,831 |  |  | — |  |  | — |  |  | 1,831 |
Repurchase of common shares | (310,000) |  |  | — |  |  | — |  |  | — |  |  | (15,393) |  |  | (15,393) |
Deferral of executive and director compensation | — |  |  | — |  |  | 1,022 |  |  | — |  |  | — |  |  | 1,022 |
Executive and director deferred compensation distributions | 90,553 |  |  | — |  |  | (3,850) |  |  | — |  |  | 3,850 |  |  | — |
Balance at March 31, 2022 | 28,288,783 |  |  | $ | 301 |  |  | $ | 346,291 |  |  | $ | 1,437,160 |  |  | $ | (80,063) |  |  | $ | 1,703,689 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
5

M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

| Three Months Ended March 31,
(Dollars in thousands) | 2023 |  | 2022
OPERATING ACTIVITIES: |  |  |
Net income | $ | 103,066 |  |  | $ | 91,839 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |  |
Equity in income from joint venture arrangements | (7) |  |  | (16) |
Mortgage loan originations | (494,461) |  |  | (479,781) |
Proceeds from the sale of mortgage loans | 514,346 |  |  | 549,025 |
Fair value adjustment of mortgage loans held for sale | (3,975) |  |  | 5,956 |
Capitalization of originated mortgage servicing rights | (1,390) |  |  | (3,583) |
Amortization of mortgage servicing rights | 523 |  |  | 300 |
Depreciation | 3,214 |  |  | 3,244 |
Amortization of debt issue costs | 660 |  |  | 644 |
Loss on sale of mortgage servicing rights | — |  |  | 176 |
Stock-based compensation expense | 2,023 |  |  | 1,831 |
Change in assets and liabilities: |  |  |
Inventory | 175,316 |  |  | (129,295) |
Other assets | (4,564) |  |  | (25,025) |
Accounts payable | (20,171) |  |  | 36,882 |
Customer deposits | 4,682 |  |  | 23,818 |
Accrued compensation | (38,969) |  |  | (31,746) |
Other liabilities | 11,206 |  |  | 25,057 |
Net cash provided by operating activities | 251,499 |  |  | 69,326 |
INVESTING ACTIVITIES: |  |  |
Purchase of property and equipment | (2,079) |  |  | (1,205) |
Investment in joint venture arrangements | (2,714) |  |  | (5,429) |
Net cash used in investing activities | (4,793) |  |  | (6,634) |
FINANCING ACTIVITIES: |  |  |
Net repayments of bank borrowings - financial services operations | (22,123) |  |  | (62,510) |
Principal repayments of notes payable - other and community development district bond obligations | — |  |  | (2,677) |
Repurchase of common shares | — |  |  | (15,393) |
Debt issue costs | — |  |  | (80) |
Proceeds from exercise of stock options | 6,439 |  |  | 206 |
Net cash used in financing activities | (15,684) |  |  | (80,454) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 231,022 |  |  | (17,762) |
Cash, cash equivalents and restricted cash balance at beginning of period | 311,542 |  |  | 236,368 |
Cash, cash equivalents and restricted cash balance at end of period | $ | 542,564 |  |  | $ | 218,606 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |
Cash paid during the year for: |  |  |
Interest — net of amount capitalized | $ | 6,176 |  |  | $ | 7,895 |
Income taxes | $ | 838 |  |  | $ | 993 |
NON-CASH TRANSACTIONS DURING THE PERIOD: |  |  |
Community development district infrastructure | $ | (2,641) |  |  | $ | (3,323) |
Consolidated inventory not owned | $ | 2,600 |  |  | $ | 60 |
Distribution of single-family lots from joint venture arrangements | $ | 5,244 |  |  | $ | 5,257 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
6

M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements (the “financial statements”) of M/I Homes, Inc. and its subsidiaries (the “Company”) and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The financial statements include the accounts of the Company. All intercompany transactions have been eliminated. Results for the interim period are not necessarily indicative of results for a full year. In the opinion of management, the accompanying financial statements reflect all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation of financial results for the interim periods presented. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that period. Actual results could differ from these estimates and have a significant impact on the financial condition and results of operations and cash flows. With regard to the Company, estimates and assumptions are inherent in calculations relating to valuation of inventory and investment in unconsolidated joint ventures, property and equipment depreciation, valuation of derivative financial instruments, accounts payable on inventory, accruals for costs to complete inventory, accruals for warranty claims, accruals for self-insured general liability claims, litigation, accruals for health care and workers’ compensation, accruals for guaranteed or indemnified loans, stock-based compensation expense, income taxes, and contingencies. Items that could have a significant impact on these estimates and assumptions include the risks and uncertainties listed in “Item 1A. Risk Factors” in Part I of our 2022 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC.
Significant Accounting Policies
There have been no significant changes to our significant accounting policies during the quarter ended March 31, 2023 as compared to those disclosed in our 2022 Form 10-K.
NOTE 2. Inventory and Capitalized Interest
Inventory
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the inventory is impaired, at which point the inventory is written down to fair value (see Note 4 to our financial statements for additional details relating to our procedures for evaluating our inventories for impairment). Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire community, less impairments, if any.
A summary of the Company’s inventory as of March 31, 2023 and December 31, 2022 is as follows:

(In thousands) | March 31, 2023 |  | December 31, 2022
Single-family lots, land and land development costs | $ | 1,279,673 |  |  | $ | 1,294,779 |
Land held for sale | 17,959 |  |  | 3,331 |
Homes under construction | 1,190,519 |  |  | 1,366,804 |
Model homes and furnishings - at cost (less accumulated depreciation: March 31, 2023 - $10,693; December 31, 2022 - $10,371) | 63,640 |  |  | 61,200 |
Community development district infrastructure | 27,060 |  |  | 29,701 |
Land purchase deposits | 58,910 |  |  | 55,739 |
Consolidated inventory not owned | 19,648 |  |  | 17,048 |
Total inventory | $ | 2,657,409 |  |  | $ | 2,828,602 |

Single-family lots, land and land development costs include raw land that the Company has purchased to develop into lots, costs incurred to develop the raw land into lots, and lots for which development has been completed, but which have not yet been used to start construction of a home.
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Homes under construction include homes that are in various stages of construction. As of March 31, 2023 and December 31, 2022, we had 1,551 homes (with a carrying value of $316.2 million) and 1,827 homes (with a carrying value of $431.7 million), respectively, included in homes under construction that were not subject to a sales contract.
Model homes and furnishings include homes that are under construction or have been completed and are being used as sales models. The amount also includes the net book value of furnishings included in our model homes. Depreciation on model home furnishings is recorded using an accelerated method over the estimated useful life of the assets, which is typically three years.
We own lots in certain communities in Florida that have Community Development Districts (“CDDs”). The Company records a liability for the estimated developer obligations that are probable and estimable and user fees that are required to be paid or transferred at the time the parcel or unit is sold to an end user. The Company reduces this liability at the time of closing and the transfer of the property. The Company recorded a $27.1 million liability and a $29.7 million liability related to these CDD bond obligations as of March 31, 2023 and December 31, 2022, respectively, along with the related inventory infrastructure.
Land purchase deposits include both refundable and non-refundable amounts paid to third party sellers relating to the purchase of land. On an ongoing basis, the Company evaluates the land option agreements relating to the land purchase deposits. The Company expenses any deposits and accumulated pre-acquisition costs relating to such agreements in the period when the Company makes the decision not to proceed with the purchase of land under an agreement.
Capitalized Interest
The Company capitalizes interest during land development and home construction. Capitalized interest is charged to land and housing costs and expensed as the related inventory is delivered to a third party. A summary of capitalized interest for the three months ended March 31, 2023 and 2022 is as follows:

| Three Months Ended March 31, |  |
(In thousands) | 2023 |  | 2022 |  |  |  |
Capitalized interest, beginning of period | $ | 29,675 |  |  | $ | 24,343 |  |  |  |  |
Interest capitalized to inventory | 9,024 |  |  | 8,791 |  |  |  |  |
Capitalized interest charged to land and housing costs and expenses | (8,090) |  |  | (7,327) |  |  |  |  |
Capitalized interest, end of period | $ | 30,609 |  |  | $ | 25,807 |  |  |  |  |
Interest incurred | $ | 7,635 |  |  | $ | 9,462 |  |  |  |  |

NOTE 3. Investment in Joint Venture Arrangements
Investment in Joint Venture Arrangements
In order to minimize our investment and risk of land exposure in a single location, we have periodically partnered with other land developers or homebuilders to share in the land investment and development of a property through joint ownership and development agreements, joint ventures, and other similar arrangements. As of March 31, 2023 and December 31, 2022, our investment in such joint venture arrangements totaled $49.0 million and $51.6 million, respectively, and was reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. The $2.6 million decrease during the three-month period ended March 31, 2023 was driven primarily by lot distributions from our joint venture arrangements of $5.2 million, offset, in part, by our cash contributions to our joint venture arrangements during the first quarter of 2023 of $2.7 million.
The majority of our investment in joint venture arrangements for both March 31, 2023 and December 31, 2022 consisted of joint ownership and development agreements for which a special purpose entity was not established (“JODAs”). In these JODAs, we own the property jointly with partners which are typically other builders, and land development activities are funded jointly until the developed lots are subdivided for separate ownership by the partners in accordance with the JODA and the approved site plan. As of March 31, 2023 and December 31, 2022, the Company had $43.4 million and $45.9 million, respectively, invested in JODAs.
The remainder of our investment in joint venture arrangements was comprised of joint venture arrangements where a special purpose entity was established to own and develop the property. For these joint venture arrangements, we generally enter into limited liability company or similar arrangements (“LLCs”) with the other partners. These entities typically engage in land development activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. As of March 31, 2023 and December 31, 2022, the Company had $5.7 million and $5.6 million, respectively, of equity invested in
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LLCs. The Company’s percentage of ownership in these LLCs as of both March 31, 2023 and December 31, 2022 ranged from 25% to 50%.
We use the equity method of accounting for investments in LLCs and other joint venture arrangements, including JODAs, over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share of the LLCs’ earnings or loss, if any, is included in our Unaudited Condensed Consolidated Statements of Income. The Company’s equity in income relating to earnings from its LLCs was less than $0.1 million for both the three months ended March 31, 2023 and 2022. Our share of the profit relating to lots we purchase from our LLCs is deferred until homes are delivered by us and title passes to a homebuyer.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of March 31, 2023 was the amount invested of $49.0 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 2022 Form 10-K for additional information regarding the Company’s methodology for evaluating entities for consolidation.
Land Option Agreements
In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are variable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary, as further described in Note 1, “Summary of Significant Accounting Policies - Land Option Agreements” in the 2022 Form 10-K. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and liabilities in our Consolidated Inventory Not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both March 31, 2023 and December 31, 2022, we concluded that we were not the primary beneficiary of any VIEs from which we are purchasing land under option or purchase agreements.
NOTE 4. Fair Value Measurements
There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Assets Measured on a Recurring Basis
The Company measures both mortgage loans held for sale and interest rate lock commitments (“IRLCs”) at fair value. Fair value measurement results in a better presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them.
In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within established time frames. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward
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sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. The Company does not engage in speculative trading or derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors are undesignated derivatives, and accordingly, are marked to fair value through earnings. Changes in fair value measurements are included in earnings in the accompanying statements of income.
The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities with similar characteristics. To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. The Company applies a fallout rate to IRLCs when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on management’s judgment and company experience.
The Company sells loans on a servicing released or servicing retained basis and receives servicing compensation. Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. Mortgage servicing rights (Level 3 financial instruments as they are measured using significant unobservable inputs such as mortgage prepayment rates, discount rates and delinquency rates) are periodically evaluated for impairment. The amount of impairment is the amount by which the mortgage servicing rights, net of accumulated amortization, exceed their fair value, which is calculated using third-party valuations. Impairment, if any, is recognized through a valuation allowance and a reduction of revenue. Both the carrying value and fair value of our mortgage servicing rights were $16.7 million at March 31, 2023. At December 31, 2022, both the carrying value and fair value of our mortgage servicing rights were $15.8 million.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.
Interest Rate Lock Commitments. IRLCs are extended to certain homebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a term of less than six months; however, in certain markets, the term could extend to nine months.
Some IRLCs are committed to a specific third-party investor through the use of whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.
Forward Sales of Mortgage-Backed Securities. Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs and FMBSs related to mortgage loans held for sale are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale. Mortgage loans held for sale consists primarily of single-family residential loans collateralized by the underlying property. Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly after origination. During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a whole loan contract or by FMBSs.
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The table below shows the notional amounts of our financial instruments at March 31, 2023 and December 31, 2022:

Description of Financial Instrument (in thousands) | March 31, 2023 |  | December 31, 2022
Whole loan contracts and related committed IRLCs | $ | 1,683 |  |  | $ | — |
Uncommitted IRLCs | 250,065 |  |  | 262,529 |
FMBSs related to uncommitted IRLCs | 259,000 |  |  | 341,088 |
Whole loan contracts and related mortgage loans held for sale | 16,576 |  |  | 16,507 |
FMBSs related to mortgage loans held for sale | 212,000 |  |  | 232,518 |
Mortgage loans held for sale covered by FMBSs | 215,420 |  |  | 233,378 |

The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31, |  |
Description (in thousands) | 2023 |  | 2022 |  |  |  |
Mortgage loans held for sale | $ | 3,975 |  |  | $ | (5,956) |  |  |  |  |
Forward sales of mortgage-backed securities | 1,235 |  |  | 13,560 |  |  |  |  |
Interest rate lock commitments | 3,498 |  |  | (7,229) |  |  |  |  |
Whole loan contracts | (380) |  |  | 125 |  |  |  |  |
Total gain recognized | $ | 8,328 |  |  | $ | 500 |  |  |  |  |

The following tables set forth the fair value of the Company’s derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which are disclosed as a separate line item):

|  | Asset Derivatives |  | Liability Derivatives
|  | March 31, 2023 |  | March 31, 2023
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 1,770 |
Interest rate lock commitments |  | Other assets |  | 4,284 |  |  | Other liabilities |  | — |
Whole loan contracts |  | Other assets |  | — |  |  | Other liabilities |  | 757 |
Total fair value measurements |  |  |  | $ | 4,284 |  |  |  |  | $ | 2,527 |

|  | Asset Derivatives |  | Liability Derivatives
|  | December 31, 2022 |  | December 31, 2022
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 3,005 |
Interest rate lock commitments |  | Other assets |  | 787 |  |  | Other liabilities |  | — |
Whole loan contracts |  | Other assets |  | — |  |  | Other liabilities |  | 377 |
Total fair value measurements |  |  |  | $ | 787 |  |  |  |  | $ | 3,382 |

Assets Measured on a Non-Recurring Basis
Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the 2022 Form 10-K for additional information regarding the Company’s methodology for determining fair value.
The Company uses significant assumptions to evaluate the recoverability of its inventory, such as estimated average selling price, construction and development costs, absorption rate (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates. Changes in these assumptions could materially impact future cash flow and fair value estimates and may lead the Company to incur additional impairment charges in the future. Our analysis is conducted only if indicators of a decline in value of our inventory exist, which include, among other things, declines in gross margin on sales contracts in backlog or homes that have been delivered, slower than anticipated absorption pace, declines in average sales price or high incentive offers by management to improve absorptions, declines in margins regarding future land sales, or declines in the value of the land itself
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as a result of third party appraisals. If communities are not recoverable based on the estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. During the three months ended March 31, 2023 and 2022, the Company did not record any impairment charges on its inventory.
Investment in Unconsolidated Joint Ventures. We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures,” in the 2022 Form 10-K for additional information regarding the Company’s methodology for determining fair value. Because of the high degree of judgment involved in developing these assumptions, it is possible that changes in these assumptions could materially impact future cash flow and fair value estimates of the investments which may lead the Company to incur additional impairment charges in the future. During the three months ended March 31, 2023 and 2022, the Company did not record any impairment charges on its investments in unconsolidated joint ventures.
Financial Instruments
Counterparty Credit Risk. To reduce the risk associated with losses that would be recognized if counterparties failed to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed.
The following table presents the carrying amounts and fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022. The objective of the fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions.

|  | March 31, 2023 |  | December 31, 2022
(In thousands) | Fair Value Hierarchy | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Assets: |  |  |  |  |  |  |  |
Cash, cash equivalents and restricted cash | Level 1 | $ | 542,564 |  |  | $ | 542,564 |  |  | $ | 311,542 |  |  | $ | 311,542 |
Mortgage loans held for sale | Level 2 | 226,629 |  |  | 226,629 |  |  | 242,539 |  |  | 242,539 |
Interest rate lock commitments | Level 2 | 4,284 |  |  | 4,284 |  |  | 787 |  |  | 787 |
Liabilities: |  |  |  |  |  |  |  |
Notes payable - homebuilding operations | Level 2 | — |  |  | — |  |  | — |  |  | — |
Notes payable - financial services operations | Level 2 | 223,618 |  |  | 223,618 |  |  | 245,741 |  |  | 245,741 |
Senior notes due 2028 (a) | Level 2 | 400,000 |  |  | 370,000 |  |  | 400,000 |  |  | 353,500 |
Senior notes due 2030 (a) | Level 2 | 300,000 |  |  | 255,000 |  |  | 300,000 |  |  | 240,750 |
Whole loan contracts for committed IRLCs and mortgage loans held for sale | Level 2 | 757 |  |  | 757 |  |  | 377 |  |  | 377 |
Forward sales of mortgage-backed securities | Level 2 | 1,770 |  |  | 1,770 |  |  | 3,005 |  |  | 3,005 |

(a)Our senior notes are stated at the principal amount outstanding which does not include the impact of premiums, discounts, and debt issuance costs that are amortized to interest cost over the respective terms of the notes.
The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at March 31, 2023 and December 31, 2022:
Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-term by nature.
Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Interest Rate Lock Commitments, Whole Loan Contracts for Committed IRLCs and Mortgage Loans Held for Sale, Senior Notes due 2028 and Senior Notes due 2030. The fair value of these financial instruments was determined based upon market quotes at March 31, 2023 and December 31, 2022. The market quotes used were quoted prices for similar assets or liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition of the asset or liability.
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Notes Payable - Homebuilding Operations. The interest rate available to the Company during the quarter ended March 31, 2023 under the Company’s $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), fluctuated daily with the secured overnight financing rate (“SOFR”) plus a margin of 175 basis points, and thus the carrying value is a reasonable estimate of fair value. See Note 8 to our financial statements for additional information regarding the Credit Facility.
Notes Payable - Financial Services Operations. M/I Financial, LLC, a 100%-owned subsidiary of M/I Homes, Inc. (“M/I Financial”), is a party to two credit agreements: (1) a $200 million secured mortgage warehousing agreement, dated May 27, 2022 (the “MIF Mortgage Warehousing Agreement”); and (2) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended most recently on October 24, 2022 (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to M/I Financial during the first quarter of 2023 fluctuated with SOFR or BSBY, as applicable. See Note 8 to our financial statements for additional information regarding the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility.
NOTE 5. Guarantees and Indemnifications
In the ordinary course of business, M/I Financial enters into agreements that provide a limited-life guarantee on loans sold to certain third-party purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $493.5 million and $360.4 million were covered under these guarantees as of March 31, 2023 and December 31, 2022, respectively. A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at March 31, 2023, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. The risk associated with the guarantees above is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $1.9 million and $2.4 million at March 31, 2023 and December 31, 2022, respectively.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company recorded a liability relating to the guarantees described above totaling $0.6 million and $0.7 million at March 31, 2023 and December 31, 2022, respectively, which is management’s best estimate of the Company’s liability with respect to such guarantees.
NOTE 6. Commitments and Contingencies
Warranty
We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally required to repair and replace any product or labor defects, we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. As such, we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered. The amounts charged are estimated by management to be adequate to cover expected warranty-related costs under the Company’s warranty programs. Warranty reserves are recorded for warranties under our Home Builder’s Limited Warranty (“HBLW”) and our transferable structural warranty in Other Liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.
The warranty reserves for the HBLW are established as a percentage of average sales price and adjusted based on historical payment patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments; (5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter. Actual future warranty costs could differ from our current estimated amount.
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Our warranty reserves for our transferable structural warranty programs are established on a per-unit basis. While the structural warranty reserve is recorded as each house is delivered, the sufficiency of the structural warranty per unit charge and total reserve is reevaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, industry-wide historical data and trends, and other project specific factors. The reserves are also evaluated quarterly and adjusted if we encounter activity that is inconsistent with the historical experience used in the annual analysis. These reserves are subject to variability due to uncertainties regarding structural defect claims for products we build, the markets in which we build, claim settlement history, insurance and legal interpretations, among other factors.
Our warranty reserve amounts are based upon historical experience and geographic location. While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs.
A summary of warranty activity for the three months ended March 31, 2023 and 2022 is as follows:

| Three Months Ended March 31, |  |  |
(In thousands) | 2023 |  | 2022 |  |  |  |  |
Warranty reserves, beginning of period | $ | 32,902 |  |  | $ | 29,728 |  |  |  |  |  |
Warranty expense on homes delivered during the period | 5,373 |  |  | 4,559 |  |  |  |  |  |
Changes in estimates for pre-existing warranties | 643 |  |  | 272 |  |  |  |  |  |
Settlements made during the period | (5,725) |  |  | (5,087) |  |  |  |  |  |
Warranty reserves, end of period | $ | 33,193 |  |  | $ | 29,472 |  |  |  |  |  |

Performance Bonds and Letters of Credit
At March 31, 2023, the Company had outstanding approximately $388.8 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities that expire at various times through November 2027. Included in this total are: (1) $307.1 million of performance and maintenance bonds and $69.6 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $4.0 million of financial letters of credit, of which $3.5 million represent deposits on land and lot purchase agreements; (3) $4.8 million of financial bonds; and (4) $3.3 million of corporate notes.
Land Option Contracts and Other Similar Contracts
At March 31, 2023, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $824.6 million. Purchase of properties under these agreements is contingent upon satisfaction of certain requirements by the Company and the sellers.
Legal Matters
The Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial position, results of operations and cash flows, such legal proceedings are subject to inherent uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which they are resolved. At both March 31, 2023 and December 31, 2022, we had $1.2 million reserved for legal expenses.
NOTE 7. Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and liabilities assumed in business combinations. In connection with the Company’s acquisition of the homebuilding assets and operations of Pinnacle Homes in Detroit, Michigan in March of 2018, the Company recorded goodwill of $16.4 million, which is included as Goodwill in our Consolidated Balance Sheets. This amount was based on the estimated fair values of the acquired assets and liabilities at the date of the acquisition in accordance with ASC 350.
In accordance with ASC 350, the Company analyzes goodwill for impairment on an annual basis (or more often if indicators of impairment exist). The Company performs a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its
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carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value. The Company performed its annual goodwill impairment analysis via a quantitative test during the fourth quarter of 2022, and there was no impairment recorded at December 31, 2022. At March 31, 2023, no indicators for impairment existed and therefore no impairment was recorded. However, we will continue to monitor the fair value of the reporting unit in future periods if conditions worsen or other events occur that could impact the fair value of the reporting unit.
NOTE 8. Debt
Notes Payable - Homebuilding
The Credit Facility provides for an aggregate commitment amount of $650 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on December 9, 2026. Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options including one, three or six month adjusted term SOFR (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio). The Credit Facility also contains certain financial covenants. At March 31, 2023, the Company was in compliance with all financial covenants of the Credit Facility.
The available amount under the Credit Facility is computed in accordance with a borrowing base, which is calculated by applying various advance rates for different categories of inventory, and totaled $1.69 billion of availability for additional senior debt at March 31, 2023. As a result, the full $650 million commitment amount of the Credit Facility was available, less any borrowings and letters of credit outstanding. At March 31, 2023, there were no borrowings outstanding and $73.6 million of letters of credit outstanding, leaving a net remaining borrowing availability of $576.4 million. The Credit Facility includes a $250 million sub-facility for letters of credit.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indentures governing the Company’s $300.0 million aggregate principal amount of 3.95% Senior Notes due 2030 (the “2030 Senior Notes”) and the Company’s $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”). The guarantors for the Credit Facility (the “Subsidiary Guarantors”) are the same subsidiaries that guarantee the 2030 Senior Notes and the 2028 Senior Notes.
The Company’s obligations under the Credit Facility are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness. Our obligations under the Credit Facility are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
Notes Payable - Financial Services
The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for a maximum borrowing availability of $200 million, which increased to $275 million from September 19, 2022 to November 13, 2022 and increased to $300 million from November 14, 2022 to February 6, 2023, which are periods of expected increases in the volume of mortgage originations. The MIF Mortgage Warehousing Agreement expires on May 26, 2023. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month BSBY rate (adjusting daily subject to a floor of 0.25%) plus a
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spread of 190 basis points. The MIF Mortgage Warehousing Agreement also contains certain financial covenants. At March 31, 2023, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Warehousing Agreement.
The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Repurchase Facility provides for a mortgage repurchase facility with a maximum borrowing availability of $90 million. The MIF Mortgage Repurchase Facility expires on October 23, 2023. M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the type of loan) and adjusts certain financial covenant limits, plus 150 or 200 basis points depending on the loan type. The MIF Mortgage Repurchase Facility also contains certain financial covenants. At March 31, 2023, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Repurchase Facility.
At March 31, 2023 and December 31, 2022, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was $290.0 million and $390.0 million, respectively. At March 31, 2023 and December 31, 2022, M/I Financial had $223.6 million and $245.7 million, respectively, in borrowings outstanding on a combined basis under its credit facilities.
Senior Notes
As of both March 31, 2023 and December 31, 2022, we had $300.0 million of our 2030 Senior Notes outstanding. The 2030 Senior Notes bear interest at a rate of 3.95% per year, payable semiannually in arrears on February 15 and August 15 of each year, and mature on February 15, 2030. The Company may redeem some or all of the 2030 Senior Notes at any time prior to August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” amount set forth in the indenture governing the 2030 Senior Notes. In addition, on or after August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), the Company may redeem some or all of the 2030 Senior Notes at a redemption price equal to 100.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
As of both March 31, 2023 and December 31, 2022, we had $400.0 million of our 2028 Senior Notes outstanding. The 2028 Senior Notes bear interest at a rate of 4.95% per year, payable semiannually in arrears on February 1 and August 1 of each year and mature on February 1, 2028. We may redeem all or any portion of the 2028 Senior Notes at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price is currently 103.713% of the principal amount outstanding, but will decline to 102.475% of the principal amount outstanding if redeemed during the 12-month period beginning on February 1, 2024, will further decline to 101.238% of the principal amount outstanding if redeemed during the 12-month period beginning on February 1, 2025 and will further decline to 100.000% of the principal amount outstanding if redeemed on or after February 1, 2026, but prior to maturity.
The 2030 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2030 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur certain liens securing indebtedness without equally and ratably securing the 2030 Senior Notes and the guarantees thereof; enter into certain sale and leaseback transactions; and consolidate or merge with or into other companies, liquidate or sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
The 2028 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2028 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
The 2030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior unsecured basis by the Subsidiary Guarantors. The 2030 Senior Notes and the 2028 Senior Notes are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness. The 2030 Senior Notes and the 2028 Senior Notes are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
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The indenture governing the 2028 Senior Notes limits our ability to pay dividends on, and repurchase, our common shares and any of our preferred shares then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indenture. The “restricted payments basket” is equal to $125.0 million plus (1) 50% of our aggregate consolidated net income (or minus 100% of our aggregate consolidated net loss) from October 1, 2015, excluding income or loss from Unrestricted Subsidiaries (as defined in the indenture), plus (2) 100% of the net cash proceeds from either contributions to the common equity of the Company after December 1, 2015 or the sale of qualified equity interests after December 1, 2015, plus other items and subject to other exceptions. The positive balance in our restricted payments basket was $708.2 million at March 31, 2023 and $661.7 million at December 31, 2022. The determination to pay future dividends on, or make future repurchases of, our common shares will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements and compliance with debt covenants, and other factors deemed relevant by our board of directors (see Note 12 to our financial statements for more information).
NOTE 9. Earnings Per Share
The table below presents a reconciliation between basic and diluted weighted average shares outstanding, net income, and basic and diluted income per share for the three months ended March 31, 2023 and 2022:

| Three Months Ended |  |
| March 31, |  |
(In thousands, except per share amounts) | 2023 |  | 2022 |  |  |  |
NUMERATOR |  |  |  |  |  |  |
Net income | $ | 103,066 |  |  | $ | 91,839 |  |  |  |  |
DENOMINATOR |  |  |  |  |  |  |
Basic weighted average shares outstanding | 27,602 |  |  | 28,424 |  |  |  |  |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock option awards | 378 |  |  | 336 |  |  |  |  |
Deferred compensation awards | 325 |  |  | 312 |  |  |  |  |
Diluted weighted average shares outstanding | 28,305 |  |  | 29,072 |  |  |  |  |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 3.73 |  |  | $ | 3.23 |  |  |  |  |
Diluted | $ | 3.64 |  |  | $ | 3.16 |  |  |  |  |
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share | 266 |  |  | 434 |  |  |  |  |

NOTE 10. Income Taxes
The Inflation Reduction Act (IRA) was enacted on August 16, 2022 to address the high cost of prescription drugs, healthcare availability, climate change and inflation. The IRA extended the energy efficient homes credit through 2032 and, as a result, the Company recognized an $0.9 million tax benefit during the first quarter of 2023.
During the three months ended March 31, 2023 and 2022, the Company recorded a tax provision of $32.9 million and $30.4 million, respectively, which reflects income tax expense related to income before income taxes for the periods. The effective tax rate for the three months ended March 31, 2023 and 2022 was 24.2% and 24.9%, respectively. The decrease in the effective rate from the three months ended March 31, 2023 was primarily attributable to an increase in tax benefit from energy efficient home credits during the first quarter of 2023.
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NOTE 11. Business Segments
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our individual homebuilding operating segments and the results of our financial services operations; (2) the results of our homebuilding reportable segments; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment and have elected to aggregate our operating segments into separate reportable segments as they share similar aggregation characteristics prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:

Northern | Southern |
Chicago, Illinois | Ft. Myers/Naples, Florida |
Cincinnati, Ohio | Orlando, Florida |
Columbus, Ohio | Sarasota, Florida |
Indianapolis, Indiana | Tampa, Florida |
Minneapolis/St. Paul, Minnesota | Austin, Texas |
Detroit, Michigan | Dallas/Fort Worth, Texas |
| Houston, Texas |
| San Antonio, Texas |
| Charlotte, North Carolina |
| Raleigh, North Carolina |
| Nashville, Tennessee |

The following table shows, by segment, revenue, operating income (loss) and interest (income) expense for the three months ended March 31, 2023 and 2022, as well as the Company’s income before income taxes for such periods:

| Three Months Ended March 31, |  |  |  |
(In thousands) | 2023 |  | 2022 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 382,730 |  |  | $ | 353,786 |  |  |  |  |  |  |
Southern homebuilding | 592,519 |  |  | 482,914 |  |  |  |  |  |  |
Financial services (a) | 25,281 |  |  | 24,111 |  |  |  |  |  |  |
Total revenue | $ | 1,000,530 |  |  | $ | 860,811 |  |  |  |  |  |  |
Operating income (loss): |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 39,160 |  |  | $ | 40,216 |  |  |  |  |  |  |
Southern homebuilding | 97,612 |  |  | 84,293 |  |  |  |  |  |  |
Financial services (a) | 14,968 |  |  | 13,933 |  |  |  |  |  |  |
Less: Corporate selling, general and administrative expense | (17,154) |  |  | (15,537) |  |  |  |  |  |  |
Total operating income | $ | 134,586 |  |  | $ | 122,905 |  |  |  |  |  |  |
Interest (income) expense: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | (46) |  |  | $ | — |  |  |  |  |  |  |
Southern homebuilding | (2) |  |  | (2) |  |  |  |  |  |  |
Financial services (a) | 2,327 |  |  | 878 |  |  |  |  |  |  |
Corporate | (3,668) |  |  | (205) |  |  |  |  |  |  |
Total interest (income) expense | $ | (1,389) |  |  | $ | 671 |  |  |  |  |  |  |
Other income | $ | (7) |  |  | $ | (16) |  |  |  |  |  |  |
Income before income taxes | $ | 135,982 |  |  | $ | 122,250 |  |  |  |  |  |  |

(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
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The following tables show total assets by segment at March 31, 2023 and December 31, 2022:

| March 31, 2023
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 8,057 |  |  | $ | 50,853 |  |  | $ | — |  |  | $ | 58,910 |
Inventory (a) | 996,537 |  |  | 1,601,962 |  |  | — |  |  | 2,598,499 |
Investments in joint venture arrangements | — |  |  | 49,031 |  |  | — |  |  | 49,031 |
Other assets | 43,358 |  |  | 112,146 |  | (b) | 900,426 |  |  | 1,055,930 |
Total assets | $ | 1,047,952 |  |  | $ | 1,813,992 |  |  | $ | 900,426 |  |  | $ | 3,762,370 |

| December 31, 2022
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 8,138 |  |  | $ | 47,601 |  |  | $ | — |  |  | $ | 55,739 |
Inventory (a) | 1,100,472 |  |  | 1,672,391 |  |  | — |  |  | 2,772,863 |
Investments in joint venture arrangements | — |  |  | 51,554 |  |  | — |  |  | 51,554 |
Other assets | 38,265 |  |  | 103,182 |  | (b) | 693,320 |  |  | 834,767 |
Total assets | $ | 1,146,875 |  |  | $ | 1,874,728 |  |  | $ | 693,320 |  |  | $ | 3,714,923 |

(a)Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.
NOTE 12. Share Repurchase Program
On July 28, 2021, the Company announced that its Board of Directors approved a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (the “2021 Share Repurchase Program”). On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program by an additional $100 million.
Pursuant to the 2021 Share Repurchase Program, the Company may purchase up to $200 million of its outstanding common shares through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws. The timing, amount and other terms and conditions of any additional repurchases under the 2021 Share Repurchase Program will be based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements. The 2021 Share Repurchase Program does not have an expiration date and the Board may modify, discontinue or suspend it at any time.
The Company did not repurchase any outstanding common shares during the first quarter of 2023. As of March 31, 2023, $93.1 million remained available for repurchases under the 2021 Share Repurchase Program.
NOTE 13. Revenue Recognition
Revenue and the related profit from the sale of a home and revenue and the related profit from the sale of land to third parties are recognized in the financial statements on the date of closing if delivery has occurred, title has passed to the buyer, all performance obligations (as defined below) have been met, and control of the home or land is transferred to the buyer in an amount that reflects the consideration we expect to be entitled to receive in exchange for the home or land. If not received immediately upon closing, cash proceeds from home closings are held in escrow for the Company’s benefit, typically for up to three days, and are included in Cash, cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets.
Sales incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis. The costs of any sales incentives in the form of free or discounted products and services provided to homebuyers are reflected in Land and housing costs in the Condensed Consolidated Statements of Income because such incentives are identified in our home purchase contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts. Sales incentives that we may provide in the form of closing cost allowances are recorded as a reduction of housing revenue at the time the home is delivered.
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We record sales commissions within Selling expenses in the Condensed Consolidated Statements of Income when incurred (i.e., when the home is delivered) as the amortization period is generally one year or less and therefore capitalization is not required as part of the practical expedient for incremental costs of obtaining a contract.
Contract liabilities include customer deposits related to sold but undelivered homes. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of our home purchase contracts have a single performance obligation as the promise to transfer the home is not separately identifiable from other promises in the contract and, therefore, not distinct. Our performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers is not material.
Although our third party land sale contracts may include multiple performance obligations, the revenue we expect to recognize in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. We do not disclose the value of unsatisfied performance obligations for land sale contracts with an original expected duration of one year or less.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or related servicing rights are sold to third party investors or retained and managed under a third party sub-service arrangement. The revenue recognized is reduced by the fair value of the related guarantee provided to the investor. The fair value of the guarantee is recognized in revenue when the Company is released from its obligation under the guarantee (note that guarantees are excluded from the scope of ASC 606, Revenue from Contracts with Customers). We recognize financial services revenue associated with our title operations as homes are delivered, closing services are rendered, and title policies are issued, all of which generally occur simultaneously as each home is delivered. All of the underwriting risk associated with title insurance policies is transferred to third-party insurers.
The following table presents our revenues disaggregated by revenue source:

| Three Months Ended March 31, |  |  |
(Dollars in thousands) | 2023 |  | 2022 |  |  |  |  |
Housing | $ | 974,946 |  |  | $ | 833,163 |  |  |  |  |  |
Land sales | 303 |  |  | 3,537 |  |  |  |  |  |
Financial services (a) | 25,281 |  |  | 24,111 |  |  |  |  |  |
Total revenue | $ | 1,000,530 |  |  | $ | 860,811 |  |  |  |  |  |

(a)Revenue includes hedging gains of $4.2 million and $8.2 million for the three months ended March 31, 2023 and 2022, respectively. Hedging gains/losses do not represent revenue recognized from contracts with customers.
Refer to Note 11 for presentation of our revenues disaggregated by geography. As our homebuilding operations accounted for over 97% of our total revenues for the three months ended March 31, 2023 and 2022, with most of those revenues generated from home purchase contracts with customers, we believe the disaggregation of revenues as disclosed above and in Note 11 fairly depict how the nature, amount, timing and uncertainty of cash flows are affected by economic factors.
NOTE 14. Stock-Based Compensation
The Company maintains the M/I Homes, Inc. 2018 Long-Term Incentive Plan (the “2018 LTIP”), an equity compensation plan administered by the Compensation Committee of our Board of Directors. Under the 2018 LTIP, the Company is permitted to grant (1) nonqualified stock options to purchase common shares, (2) incentive stock options to purchase common shares, (3) stock appreciation rights, (4) restricted common shares, (5) other stock-based awards (awards that are valued in whole or in part by reference to, or otherwise based on, the fair market value of our common shares), and (6) cash-based awards to its officers, employees, non-employee directors and other eligible participants. Subject to certain adjustments, the 2018 LTIP authorizes awards to officers, employees, non-employee directors and other eligible participants for up to 4,217,436 common shares, of which 1,338,412 remain available for grant at March 31, 2023.
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The 2018 LTIP replaced the M/I Homes, Inc. 2009 Long-Term Incentive Plan (the “2009 LTIP”), which was terminated immediately following our 2018 Annual Meeting of Shareholders. Awards outstanding under the 2009 LTIP Plan remain in effect in accordance with their respective terms.
Stock Options
On February 15, 2023, the Company awarded certain of its employees 487,500 (in the aggregate) nonqualified stock options at an exercise price of $58.73 (the closing price of our common shares on the New York Stock Exchange on such date) and a fair value of $24.67 that vest ratably over a five-year period. Total stock-based compensation expense related to stock option awards that has been charged against income relating to the 2018 LTIP was $2.0 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was a total of $23.3 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as stock-based compensation expense as the awards vest over a weighted average period of 2.5 years.
Performance Share Unit Awards
On February 15, 2023, February 17, 2022 and February 16, 2021, the Company awarded its executive officers (in the aggregate) a target number of performance share units (“PSU’s”) equal to 27,243, 33,619 and 30,875 PSU’s, respectively. Each PSU represents a contingent right to receive one common share of the Company if vesting is satisfied at the end of a three-year performance period (the “Performance Period”). The ultimate number of PSU’s that will vest and be earned, if any, after the completion of the Performance Period, is based on (1) (a) the Company’s cumulative annual pre-tax income from operations, excluding extraordinary items, as defined in the underlying award agreements with the executive officers, over the Performance Period (weighted 80%) (the “Performance Condition”), and (b) the Company’s relative total shareholder return over the Performance Period compared to the total shareholder return of a peer group of other publicly-traded homebuilders (weighted 20%) (the “Market Condition”) and (2) the participant’s continued employment through the end of the Performance Period, except in the case of termination due to death, disability or retirement or involuntary termination without cause by the Company. The number of PSU’s that vest may increase by up to 50% from the target number based on levels of achievement of the above criteria as set forth in the applicable award agreements and decrease to zero if the Company fails to meet the minimum performance levels for both of the above criteria. If the Company achieves the minimum performance levels for both of the above criteria, 50% of the target number of PSU’s will vest and be earned. Any portion of PSU’s that does not vest at the end of the Performance Period will be forfeited. Additionally, the PSU’s have no dividend or voting rights during the Performance Period.
The grant date fair value of the portion of the PSU’s subject to the Performance Condition and the Market Condition component was $58.73 and $64.45 for the 2023 PSU’s, respectively, $47.59 and $50.51 for the 2022 PSU’s, respectively, and $51.82 and $56.44 for the 2021 PSU’s, respectively. In accordance with ASC 718, for the portion of the PSU’s subject to a Market Condition, stock-based compensation expense is derived using the Monte Carlo simulation methodology and is recognized ratably over the service period regardless of whether or not the attainment of the Market Condition is probable. Therefore, the Company recognized less than $0.1 million in stock-based compensation expense during the first quarter of 2023 related to the Market Condition portion of the 2023, 2022 and 2021 PSU awards. There was a total of $0.3 million of unrecognized stock-based compensation expense related to the Market Condition portion of the 2023, 2022 and 2021 PSU awards as of March 31, 2023.
For the portion of the PSU’s subject to the Performance Condition, we recognize stock-based compensation expense on a straight-line basis over the Performance Period based on the probable outcome of the related Performance Condition. Otherwise, stock-based compensation expense recognition is deferred until probability is attained and a cumulative stock-based compensation expense adjustment is recorded and recognized ratably over the remaining service period. The Company reassesses the probability of the satisfaction of the Performance Condition on a quarterly basis, and stock-based compensation expense is adjusted based on the portion of the requisite service period that has passed. As of March 31, 2023, the Company had not recognized any stock-based compensation expense related to the Performance Condition portion of the 2023 and 2022 PSU awards. If the Company achieves the minimum performance levels for the Performance Conditions to be met for the 2023 and 2022 PSU awards, the Company would record unrecognized stock-based compensation expense of $1.0 million as of March 31, 2023, for which $0.3 million would be immediately recognized had attainment been probable at March 31, 2023. The Company recognized a total of $0.2 million of stock-based compensation expense related to the Performance Condition portion of the 2021 PSU awards during the first quarter of 2023 based on the probability of attaining the respective performance conditions. The Company has a total of $0.5 million of unrecognized stock-based compensation expense for the 2021 PSU awards as of March 31, 2023.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
M/I Homes, Inc. and subsidiaries (the “Company” or “we”) is one of the nation’s leading builders of single-family homes having sold over 145,600 homes since commencing homebuilding activities in 1976. The Company’s homes are marketed and sold primarily under the M/I Homes brand. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; Detroit, Michigan; Ft. Myers/Naples, Tampa, Sarasota and Orlando, Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and Nashville, Tennessee.
Included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are the following topics relevant to the Company’s performance and financial condition:
•Information Relating to Forward-Looking Statements;
•Application of Critical Accounting Estimates and Policies;
•Results of Operations;
•Discussion of Our Liquidity and Capital Resources; and
•Impact of Interest Rates and Inflation.
FORWARD-LOOKING STATEMENTS
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements, including, but not limited to, statements regarding our future financial performance and financial condition. Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements involve a number of risks and uncertainties. Any forward-looking statements that we make herein and in future reports and statements are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various risk factors, including, without limitation, factors relating to the economic environment, interest rates, availability of resources, competition, market concentration, land development activities, construction defects, product liability and warranty claims and various governmental rules and regulations. See “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), as the same may be updated from time to time in our subsequent filings with the SEC, for more information regarding those risk factors.
Any forward-looking statement speaks only as of the date made. Except as required by applicable law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.
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APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and assumptions on historical experience and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and assumptions and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future. See Note 1 (Summary of Significant Accounting Policies) to our consolidated financial statements included in our 2022 Form 10-K for additional information about our accounting policies.
We believe that there have been no significant changes to our critical accounting policies during the quarter ended March 31, 2023 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K.
RESULTS OF OPERATIONS
Our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations. The homebuilding operating segments that comprise each of our reportable segments are as follows:

Northern | Southern |
Chicago, Illinois | Ft. Myers/Naples, Florida |
Cincinnati, Ohio | Orlando, Florida |
Columbus, Ohio | Sarasota, Florida |
Indianapolis, Indiana | Tampa, Florida |
Minneapolis/St. Paul, Minnesota | Austin, Texas |
Detroit, Michigan | Dallas/Fort Worth, Texas |
| Houston, Texas |
| San Antonio, Texas |
| Charlotte, North Carolina |
| Raleigh, North Carolina |
| Nashville, Tennessee |

Overview
During the first quarter of 2023, we continued to experience weaker homebuyer demand compared to the same period last year as a result of the uncertain macroeconomic conditions that began to significantly impact the broader U.S. economy during the second half of 2022, particularly the historic rise in mortgage interest rates and the high rate of inflation not experienced since the 1970s. We believe that these conditions caused many potential homebuyers to postpone their homebuying decisions. Although mortgage interest rates continue to fluctuate, the average 30-year fixed mortgage interest rate has hovered around 7% during the first quarter of 2023. These conditions negatively impacted our overall new contracts during the first quarter of 2023 due to a softer demand environment compared to prior year, resulting in a 14% decline in new contracts.
We believe that potential homebuyers are adjusting to higher interest rates and cautiously reentering the housing market despite continuing affordability and economic recession concerns. We also believe that the incentives and price reductions we have offered in certain locations as well as seasonal trends have further encouraged demand. We continue to believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of new and resale inventory.
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Despite the challenges impacting the homebuilding industry, we achieved the following results during the first quarter of 2023 in comparison to the first quarter of 2022:
•Revenue increased 16% to $1.00 billion (a first quarter record)
•Average sales price of homes delivered increased 6% to $486,000 (a first quarter record)
•Number of homes delivered increased 10% to 2,007 homes (second highest first quarter in Company history)
•Income before income taxes increased 11% to $136.0 million (a first quarter record)
•Net income increased 12% to $103.1 million (a first quarter record)
•Shareholders’ equity of $2.18 billion (a record high for the Company)
These increases reflect the strong demand for our homes that existed through the first half of 2022, as many of the homes delivered in the first quarter of 2023 were placed under contract prior to the softening of demand in the latter half of 2022.
Our company-wide absorption pace of sales per community for the first quarter of 2023 declined to 3.7 per month compared to 4.8 per month for the prior year’s first quarter as a result of increased average community count to 198 for the first quarter of 2023 from 176 for the first quarter of 2022 and the decrease in the number of new contracts during the quarter compared to prior year. We plan to open a number of new communities in 2023, increasing our community count by approximately 15% from the end of 2022. However, given the uncertainty in the housing market as a result of current economic conditions, we may choose to delay the development and opening of some new communities to match homebuyer demand in the remainder of 2023.
Summary of Company Financial Results
Income before income taxes for the first quarter of 2023 increased 11% from $122.3 million in the first quarter of 2022 to a first quarter record $136.0 million in 2023. We also achieved first quarter record net income of $103.1 million, or $3.64 per diluted share, in 2023's first quarter, compared to net income of $91.8 million, or $3.16 per diluted share, in 2022's first quarter. Our effective tax rate was 24.2% in 2023’s first quarter compared to 24.9% in 2022.
During the quarter ended March 31, 2023, we recorded first quarter record total revenue of $1.00 billion, of which $974.9 million was from homes delivered, $0.3 million was from land sales and $25.3 million was from our financial services operations. Revenue from homes delivered increased 17% in 2023's first quarter compared to the same period in 2022 driven primarily by a 6% increase in the average sales price of homes delivered ($29,000 per home delivered) and a 10% increase in the number of homes delivered (184 units). The increases were due primarily to the robust consumer demand in early 2022 when the majority of our homes delivered during the quarter were placed under contract. Revenue from land sales decreased $3.2 million from the first quarter of 2022 due to fewer land sales in the current year period compared to prior year. Revenue from our financial services segment increased 5% to $25.3 million in the first quarter of 2023 as a result of an increase in the average loan amount and slightly higher margins on loans sold during the period compared to the first quarter of 2022, offset partially by a decrease in loans closed compared to the first quarter of 2023.
Total gross margin (total revenue less total land and housing costs) increased $21.5 million in the first quarter of 2023 compared to the first quarter of 2022 as a result of a $20.3 million improvement in the gross margin of our homebuilding operations (housing gross margin and land sales gross margin) and a $1.2 million increase in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) increased $21.3 million primarily as a result of the 6% increase in average sales price of homes delivered and the 10% increase in the number of homes delivered. Our housing gross margin percentage declined 110 basis points from 22.6% in prior year's first quarter to 21.5% in 2023's first quarter, primarily as a result of increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year. Our housing gross margin may fluctuate from quarter to quarter depending on the mix of communities delivering homes due to the variation in margin between different communities. Our gross margin on land sales (land sale gross margin) declined $1.0 million in the first quarter of 2023 compared to the first quarter of 2022 as a result of fewer land sales in the current year first quarter compared to the prior year. The gross margin of our financial services operations increased $1.2 million in the first quarter of 2023 compared to the first quarter of 2022 as a result of slightly higher margins on loans sold and an increase in the average loan amount during the first quarter of 2023 compared to the first quarter of 2022, partially offset by a decrease in the number of loan originations.
Headwinds from supply chain issues and regulatory delays have impacted development completions and model openings which have delayed planned community openings. We opened 19 new communities during the first quarter of 2023 and closed 15 communities.
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For the three months ended March 31, 2023, selling, general and administrative expense increased $9.8 million, which partially offset the increase in our total gross margin discussed above, but improved as a percentage of revenue from 10.5% in the first quarter of 2022 to 10.0% in the first quarter of 2023 (a first quarter record). Selling expense increased $7.6 million from 2022's first quarter and increased as a percentage of revenue to 4.9% in 2023's first quarter from 4.8% for the same period in 2022. Variable selling expense for sales commissions contributed $6.5 million to the increase due to the higher number of homes delivered during the first quarter of 2023. Non-variable selling expense increased $1.1 million primarily as a result of increased costs associated with our sales offices and models. General and administrative expense increased $2.2 million compared to the first quarter of 2022 and improved as a percentage of revenue from 5.7% in the first quarter of 2022 to 5.1% in the first quarter of 2023. The increase in general and administrative expense was primarily due to an increase in compensation-related expenses due to our strong financial performance during the quarter.
Outlook
Housing market conditions remained uncertain during the first quarter of 2023, resulting in weaker overall demand for new homes compared to the same period last year. We attribute this decline in demand to various macroeconomic conditions, including steep increases in mortgage rates since January 2022, substantial increases in home prices over the past two years, the high rate of inflation, and economic recession concerns of our potential homebuyers. The extent to which these factors will continue to impact our business is highly uncertain and unpredictable, and our past performance should not be considered indicative of our future results on any metric or set of metrics given the uncertainty in the U.S. economy.
Despite these negative economic developments, we believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of available homes, positive consumer demographics, scarcity of rentals and increasing rent prices.
We believe that we are well positioned to manage through these challenging economic conditions with our affordable product offerings, lot supply and planned new community openings. We remain sensitive to the changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending and offering incentives, including mortgage interest rate buy-downs, to retain our backlog and improve our sales pace. Our strong balance sheet and liquidity position should also provide us with the flexibility to operate effectively through changing economic conditions. However, we cannot provide any assurances that the strategic business objectives listed below will remain successful, and we may need to adjust elements of our strategy to effectively address evolving market conditions.
We expect to emphasize the following strategic business objectives throughout the remainder of 2023 and into 2024:
•managing our land spend and inventory levels;
•improving our build cycle time;
•opening new communities;
•managing overhead spend;
•maintaining a strong balance sheet and liquidity levels; and
•emphasizing customer service, product quality and design, and premier locations.
During the first three months of 2023, we invested $45.6 million in land acquisitions and $92.4 million in land development. We invested in fewer land acquisitions in the first quarter of 2023 compared to prior year’s first quarter due to declining demand for new homes and invested more in land development to finish lots needed to start homes and allow us to open new communities in an effort to increase demand and sales. We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly. However, as a result of the impacts of current market conditions and municipality delays, we are not providing land spending estimates for 2023 at this time.
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We ended the first quarter of 2023 with approximately 40,700 lots under control, which represents approximately a 5-year supply of lots based on the past twelve months of homes delivered, including certain lots that we anticipate selling to third parties. This represents a 11% decrease from our approximately 45,800 lots under control at the end of last year’s first quarter.
We opened 19 communities and closed 15 communities in the first quarter of 2023, ending the first quarter with 200 active communities, compared to 176 at the end of last year’s first quarter. Although the timing of opening new communities and closing existing communities is subject to substantial variation, we expect to grow our community count by approximately 15% by the end of 2023.
While we believe the remainder of 2023 will be very challenging compared to the strong market conditions during the first half of 2022 and the previous few years, we also believe that we are well positioned with a strong balance sheet and backlog to manage through the current economic environment. However, the challenging macroeconomic conditions described above could materially and negatively affect our performance in 2023, particularly when compared to our performance over the past few years.
Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of increased mortgage interest rates, inflation, materials and labor cost increases, supply chain disruptions and labor shortages, and the further impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things. These factors are highly uncertain and outside our control. As a result, our past performance may not be indicative of future results.
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The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income (loss); and interest expense (income) for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31, |  |  |  |
(In thousands) | 2023 |  | 2022 |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 382,730 |  |  | $ | 353,786 |  |  |  |  |  |  |
Southern homebuilding | 592,519 |  |  | 482,914 |  |  |  |  |  |  |
Financial services (a) | 25,281 |  |  | 24,111 |  |  |  |  |  |  |
Total revenue | $ | 1,000,530 |  |  | $ | 860,811 |  |  |  |  |  |  |
Gross margin: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 66,500 |  |  | $ | 67,108 |  |  |  |  |  |  |
Southern homebuilding | 142,845 |  |  | 121,890 |  |  |  |  |  |  |
Financial services (a) | 25,281 |  |  | 24,111 |  |  |  |  |  |  |
Total gross margin | $ | 234,626 |  |  | $ | 213,109 |  |  |  |  |  |  |
Selling, general and administrative expense: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 27,340 |  |  | $ | 26,892 |  |  |  |  |  |  |
Southern homebuilding | 45,233 |  |  | 37,597 |  |  |  |  |  |  |
Financial services (a) | 10,313 |  |  | 10,178 |  |  |  |  |  |  |
Corporate | 17,154 |  |  | 15,537 |  |  |  |  |  |  |
Total selling, general and administrative expense | $ | 100,040 |  |  | $ | 90,204 |  |  |  |  |  |  |
Operating income (loss): |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 39,160 |  |  | $ | 40,216 |  |  |  |  |  |  |
Southern homebuilding | 97,612 |  |  | 84,293 |  |  |  |  |  |  |
Financial services (a) | 14,968 |  |  | 13,933 |  |  |  |  |  |  |
Less: Corporate selling, general and administrative expense | (17,154) |  |  | (15,537) |  |  |  |  |  |  |
Total operating income | $ | 134,586 |  |  | $ | 122,905 |  |  |  |  |  |  |
Interest (income) expense: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | (46) |  |  | $ | — |  |  |  |  |  |  |
Southern homebuilding | (2) |  |  | (2) |  |  |  |  |  |  |
Financial services (a) | 2,327 |  |  | 878 |  |  |  |  |  |  |
Corporate | (3,668) |  |  | (205) |  |  |  |  |  |  |
Total interest (income) expense | $ | (1,389) |  |  | $ | 671 |  |  |  |  |  |  |
Other income | (7) |  |  | (16) |  |  |  |  |  |  |
Income before income taxes | $ | 135,982 |  |  | $ | 122,250 |  |  |  |  |  |  |

(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.
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The following tables show total assets by segment at March 31, 2023 and December 31, 2022:

| At March 31, 2023
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 8,057 |  |  | $ | 50,853 |  |  | $ | — |  |  | $ | 58,910 |
Inventory (a) | 996,537 |  |  | 1,601,962 |  |  | — |  |  | 2,598,499 |
Investments in joint venture arrangements | — |  |  | 49,031 |  |  | — |  |  | 49,031 |
Other assets | 43,358 |  |  | 112,146 |  | (b) | 900,426 |  |  | 1,055,930 |
Total assets | $ | 1,047,952 |  |  | $ | 1,813,992 |  |  | $ | 900,426 |  |  | $ | 3,762,370 |

| At December 31, 2022
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 8,138 |  |  | $ | 47,601 |  |  | $ | — |  |  | $ | 55,739 |
Inventory (a) | 1,100,472 |  |  | 1,672,391 |  |  | — |  |  | 2,772,863 |
Investments in joint venture arrangements | — |  |  | 51,554 |  |  | — |  |  | 51,554 |
Other assets | 38,265 |  |  | 103,182 |  | (b) | 693,320 |  |  | 834,767 |
Total assets | $ | 1,146,875 |  |  | $ | 1,874,728 |  |  | $ | 693,320 |  |  | $ | 3,714,923 |

(a)Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.
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Reportable Segments
The following table presents, by reportable segment, selected operating and financial information as of and for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31, |  |  |  |
(Dollars in thousands) | 2023 |  | 2022 |  |  |  |  |  |
Northern Region |  |  |  |  |  |  |  |  |
Homes delivered | 797 |  |  | 760 |  |  |  |  |  |  |
New contracts, net | 828 |  |  | 1,190 |  |  |  |  |  |  |
Backlog at end of period | 1,087 |  |  | 2,320 |  |  |  |  |  |  |
Average sales price of homes delivered | $ | 480 |  |  | $ | 466 |  |  |  |  |  |  |
Average sales price of homes in backlog | $ | 515 |  |  | $ | 494 |  |  |  |  |  |  |
Aggregate sales value of homes in backlog | $ | 559,536 |  |  | $ | 1,144,989 |  |  |  |  |  |  |
Housing revenue | $ | 382,630 |  |  | $ | 353,786 |  |  |  |  |  |  |
Land sale revenue | $ | 100 |  |  | $ | — |  |  |  |  |  |  |
Operating income homes (a) | $ | 39,156 |  |  | $ | 40,216 |  |  |  |  |  |  |
Operating income land | $ | 4 |  |  | $ | — |  |  |  |  |  |  |
Number of average active communities | 101 |  |  | 92 |  |  |  |  |  |  |
Number of active communities, end of period | 104 |  |  | 94 |  |  |  |  |  |  |
Southern Region |  |  |  |  |  |  |  |  |
Homes delivered | 1,210 |  |  | 1,063 |  |  |  |  |  |  |
New contracts, net | 1,343 |  |  | 1,324 |  |  |  |  |  |  |
Backlog at end of period | 2,214 |  |  | 3,206 |  |  |  |  |  |  |
Average sales price of homes delivered | $ | 490 |  |  | $ | 451 |  |  |  |  |  |  |
Average sales price of homes in backlog | $ | 526 |  |  | $ | 513 |  |  |  |  |  |  |
Aggregate sales value of homes in backlog | $ | 1,165,014 |  |  | $ | 1,643,245 |  |  |  |  |  |  |
Housing revenue | $ | 592,316 |  |  | $ | 479,377 |  |  |  |  |  |  |
Land sale revenue | $ | 203 |  |  | $ | 3,537 |  |  |  |  |  |  |
Operating income homes (a) | $ | 97,619 |  |  | $ | 83,326 |  |  |  |  |  |  |
Operating (loss) income land | $ | (7) |  |  | $ | 967 |  |  |  |  |  |  |
Number of average active communities | 97 |  |  | 84 |  |  |  |  |  |  |
Number of active communities, end of period | 96 |  |  | 82 |  |  |  |  |  |  |
Total Homebuilding Regions |  |  |  |  |  |  |  |  |
Homes delivered | 2,007 |  |  | 1,823 |  |  |  |  |  |  |
New contracts, net | 2,171 |  |  | 2,514 |  |  |  |  |  |  |
Backlog at end of period | 3,301 |  |  | 5,526 |  |  |  |  |  |  |
Average sales price of homes delivered | $ | 486 |  |  | $ | 457 |  |  |  |  |  |  |
Average sales price of homes in backlog | $ | 522 |  |  | $ | 505 |  |  |  |  |  |  |
Aggregate sales value of homes in backlog | $ | 1,724,550 |  |  | $ | 2,788,234 |  |  |  |  |  |  |
Housing revenue | $ | 974,946 |  |  | $ | 833,163 |  |  |  |  |  |  |
Land sale revenue | $ | 303 |  |  | $ | 3,537 |  |  |  |  |  |  |
Operating income homes (a) | $ | 136,775 |  |  | $ | 123,542 |  |  |  |  |  |  |
Operating (loss) income land | $ | (3) |  |  | $ | 967 |  |  |  |  |  |  |
Number of average active communities | 198 |  |  | 176 |  |  |  |  |  |  |
Number of active communities, end of period | 200 |  |  | 176 |  |  |  |  |  |  |

(a)Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.

| Three Months Ended March 31, |  |
(Dollars in thousands) | 2023 |  | 2022 |  |  |  |
Financial Services |  |  |  |  |  |  |
Number of loans originated | 1,258 |  |  | 1,271 |  |  |  |  |
Value of loans originated | $ | 494,461 |  |  | $ | 479,780 |  |  |  |  |
Revenue | $ | 25,281 |  |  | $ | 24,111 |  |  |  |  |
Less: Selling, general and administrative expenses | 10,313 |  |  | 10,178 |  |  |  |  |
Less: Interest expense | 2,327 |  |  | 878 |  |  |  |  |
Income before income taxes | $ | 12,641 |  |  | $ | 13,055 |  |  |  |  |

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A home is included in “new contracts” when our standard sales contract is executed. “Homes delivered” represents homes for which the closing of the sale has occurred. “Backlog” represents homes for which the standard sales contract has been executed, but which are not included in homes delivered because closings for these homes have not yet occurred as of the end of the period specified.
The composition of our homes delivered, new contracts, net and backlog is constantly changing and may be based on a dissimilar mix of communities between periods as new communities open and existing communities wind down. Further, home types and individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots. These variations may result in a lack of meaningful comparability between homes delivered, new contracts, net and backlog due to the changing mix between periods.
Cancellation Rates
Our cancellation rates have increased from the prior year due to the softening in the housing market and economic uncertainty. The following table sets forth the cancellation rates for each of our homebuilding segments for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  |  |  |
Northern | 10.8 | % |  | 6.7 | % |  |  |  |
Southern | 14.0 | % |  | 7.7 | % |  |  |  |
Total cancellation rate | 12.8 | % |  | 7.2 | % |  |  |  |

Seasonality
Typically, our homebuilding operations experience significant seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, homes delivered increase substantially in the second half of the year compared to the first half of the year. We believe that this seasonality reflects the tendency of homebuyers to shop for a new home in the spring with the goal of closing in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions. Our financial services operations also experience seasonality because loan originations correspond with the delivery of homes in our homebuilding operations.
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Northern Region. During the first quarter of 2023, homebuilding revenue in our Northern region increased $28.9 million, from $353.8 million in the first three months of 2022 to $382.7 million in the first three months of 2023. This 8% increase in homebuilding revenue was primarily the result of a 3% increase in the average sales price of homes delivered ($14,000 per home delivered), in addition to a 5% increase in the number of homes delivered (37 units) and a $0.1 million increase in land sale revenue. Operating income in our Northern region decreased $1.0 million, from $40.2 million during the first quarter of 2022 to $39.2 million during the three months ended March 31, 2023. The decrease in operating income was primarily the result of a $0.6 million decrease in our gross margin and the $0.4 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin declined $0.6 million, and our housing gross margin percentage declined 160 basis points from 19.0% in the first three months of 2022 to 17.4% for the same period in 2023, primarily due to increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin remained flat in the first quarter of 2023 compared to the first quarter of 2022.
Selling, general and administrative expense increased $0.4 million, from $26.9 million for the three months ended March 31, 2022 to $27.3 million for the three months ended March 31, 2023, but declined as a percentage of revenue to 7.1% in the first quarter of 2023 compared to 7.6% in the same period in 2022. The increase in selling, general and administrative expense was attributable to a $1.0 million increase in selling expense primarily due to an increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, partially offset by a $0.6 million decrease in general and administrative expense, which was primarily related to a decrease in compensation-related expenses due to our decreased headcount.
During the three months ended March 31, 2023, we experienced a 30% decrease in new contracts in our Northern region, from 1,190 in the three months ended March 31, 2022 to 828 in the first quarter of 2023. Homes in backlog also decreased 53% from 2,320 at March 31, 2022 to 1,087 homes at March 31, 2023. The decreases in new contracts and backlog were partially due to decreased demand as a result of the macroeconomic conditions described above in our Overview section and difficult comps versus last year. Average sales price in backlog increased to $515,000 at March 31, 2023 compared to $494,000 at
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March 31, 2022. During the three months ended March 31, 2023, we opened 11 new communities in our Northern region compared to opening 15 during the same period in 2022. Our monthly absorption rate in our Northern region declined to 2.7 per community in the three months ended March 31, 2023 from 4.3 per community in the same period in 2022 as a result of the decrease in the number of new contracts during the period compared to prior year and the increase in the number of average active communities.
Southern Region. During the three months ended March 31, 2023, homebuilding revenue in our Southern region increased $109.6 million from $482.9 million in the first quarter of 2022 to $592.5 million in the first quarter of 2023. This 23% increase in homebuilding revenue was the result of a 9% increase in the average sales price of homes delivered ($39,000 per home delivered) and a 14% increase in the number of homes delivered (147 units), offset partially by a $3.3 million decrease in land sale revenue. Operating income in our Southern region increased 16% from $84.3 million in the first quarter of 2022 to $97.6 million during the three months ended March 31, 2023. This increase in operating income was the result of a $21.0 million improvement in our gross margin, offset partially by a $7.6 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $21.9 million, due primarily to the increase in average sale price of homes delivered and the increase in the number of homes delivered during the period. Our housing gross margin percentage declined 110 basis points from 25.2% in the three months ended March 31, 2022 to 24.1% in the same period in 2023, primarily due to increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin declined $1.0 million in the first quarter of 2023 compared to the same period in 2022 as a result of the mix of lots sold in the current year compared to the prior year.
Selling, general and administrative expense increased $7.6 million from $37.6 million in the first quarter of 2022 to $45.2 million in the first quarter of 2023 but declined as a percentage of revenue to 7.6% from 7.8% for the first quarter of 2022. The increase in selling, general and administrative expense was attributable to a $6.6 million increase in selling expense primarily due to an increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered and a $1.0 million increase in general and administrative expense, which was primarily related to a $0.6 million increase in compensation-related expenses due to our strong financial performance and a $0.4 million increase in miscellaneous expenses.
During the three months ended March 31, 2023, we experienced a 1% increase in new contracts in our Southern region, from 1,324 in the three months ended March 31, 2022 to 1,343 in the first quarter of 2023 primarily due to the increase in our average number of communities compared to prior year. Homes in backlog decreased 31% from 3,206 homes at March 31, 2022 to 2,214 homes at March 31, 2023 due primarily to decreased demand as a result of the macroeconomic conditions described above in our Overview section and difficult comps compared to prior year. Average sales price in backlog increased from $513,000 at March 31, 2022 to $526,000 at March 31, 2023. During the three months ended March 31, 2023, we opened eight communities in our Southern region, compared to opening 16 during the first quarter of 2022. Our monthly absorption rate in our Southern region declined to 4.6 per community in the first quarter of 2023 from 5.3 per community in the first quarter of 2022 as a result of the increase in our average communities and the increase in the number of new contracts during the period compared to prior year.
Financial Services. Revenue from our mortgage and title operations increased 5% from $24.1 million in the first quarter of 2022 to $25.3 million in the first quarter of 2023 due to slightly higher margins on loans sold during the period compared to 2022's first quarter and an increase in the average loan amount from $377,000 in the three months ended March 31, 2022 to $393,000 in the three months ended March 31, 2023, offset partially by a 1% decrease in the number of loan originations from 1,271 in the first quarter of 2022 to 1,258 in the first quarter of 2023.
Our financial services segment experienced a $1.0 million increase in operating income in the first quarter of 2023 compared to the same period in 2022, which was primarily due to the increase in revenue discussed above, partially offset by a $0.1 million increase in selling, general and administrative expense compared to the first quarter of 2022. The increase in selling, general and administrative expense was primarily attributable to an increase in compensation-related expenses.
At March 31, 2023, M/I Financial provided financing services in all of our markets. Approximately 78% of our homes delivered during the first quarter of 2023 were financed through M/I Financial, compared to 82% in the first quarter of 2022. Capture rate is influenced by financing availability and can fluctuate from quarter to quarter.
Corporate Selling, General and Administrative Expense. Corporate selling, general and administrative expense increased $1.7 million from $15.5 million for the three months ended March 31, 2022 to $17.2 million for the three months ended March 31, 2023, primarily due to an increase in compensation-related expenses due to our increased headcount and our strong financial performance.
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Interest Expense - Net. Interest income for the Company increased from interest expense of $0.7 million in the three months ended March 31, 2022 to interest income of $1.4 million in the three months ended March 31, 2023. This increase in interest income was primarily due to a decrease in our weighted average borrowings from $802.2 million in 2022's first quarter to $750.5 million in 2023's first quarter.
Income Taxes. Our overall effective tax rate was 24.2% for the three months ended March 31, 2023 and 24.9% for the three months ended March 31, 2022. The decrease in the effective rate from the three months ended March 31, 2022 was due to an increase in energy efficient home credits during the first quarter of 2023.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Capital Resources and Liquidity.
At March 31, 2023, we had $542.6 million of cash, cash equivalents and restricted cash, with $541.2 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $230.6 million increase in unrestricted cash and cash equivalents from December 31, 2022. Our principal uses of cash for the three months ended March 31, 2023 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities during the first quarter of 2023. In order to fund these uses of cash, we used proceeds from home deliveries, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.
The Company is a party to three primary credit agreements: (1) a $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries; (2) a $200 million secured mortgage warehousing agreement, dated May 27, 2022, with M/I Financial as borrower (the “MIF Mortgage Warehousing Agreement”); and (3) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended most recently on October 24, 2022, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).
As of March 31, 2023, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities in an aggregate principal amount of $923.6 million, with $223.6 million payable within 12 months. Future interest payments associated with these notes payable totaled $182.1 million as of March 31, 2023, with $31.8 million payable within 12 months.
As of March 31, 2023, there were no borrowings outstanding and $73.6 million of letters of credit outstanding under our $650 million Credit Facility, leaving $576.4 million available. We expect to continue managing our balance sheet and liquidity carefully in 2023 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2023 from cash receipts, excess cash balances and availability under our credit facilities.
During the first quarter of 2023, we delivered 2,007 homes, started 1,558 homes, ended the quarter with 4,100 homes under construction versus 5,700 at the end of last year’s first quarter, and spent $45.6 million on land purchases and $92.4 million on land development.
We are selectively acquiring and developing lots in our markets to replenish our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly. Pursuant to our land option agreements, as of March 31, 2023, we had a total of 16,975 lots under contract, with an aggregate purchase price of approximately $824.6 million, to be acquired during the remainder of 2023 through 2029.
Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds. We use these arrangements to secure the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.
Operating Cash Flow Activities. During the three-month period ended March 31, 2023, we generated $251.5 million of cash from operating activities, compared to generating $69.3 million of cash from operating activities during the first quarter of 2022. The cash generated in operating activities in the first quarter of 2023 was primarily a result of net income of $103.1 million, $19.9 million of proceeds from the sale of mortgage loans net of mortgage loan originations, a $175.3 million decrease in inventory due to decline in demand and an increase of $15.9 million in customer deposits and other liabilities, offset, in part, by an increase in accounts payable and accrued compensation totaling $59.1 million and an increase in other assets of $4.6 million. The cash generated from operating activities in 2022’s first quarter was primarily a result of net income
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of $91.8 million, $69.2 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable, customer deposits and other liabilities totaling $85.8 million offset, in part, by a $129.3 million increase in inventory, a decrease in accrued compensation of $31.7 million and an increase in other assets of $25.1 million.
Investing Cash Flow Activities. During the first quarter of 2023, we used $4.8 million of cash from investing activities, compared to using $6.6 million of cash from investing activities during the first quarter of 2022. The cash used in investing activities in the first quarter of 2023 was primarily a result of a $2.7 million increase in our investment in joint venture arrangements and a $2.1 million increase in property and equipment. The cash used in investing activities during the first quarter of 2022 was primarily a result of a $5.4 million increase in our investment in joint venture arrangements.
Financing Cash Flow Activities. During the three months ended March 31, 2023, we used $15.7 million of cash from financing activities, compared to using $80.5 million of cash during the first three months of 2022. The cash used in financing activities in 2023 was primarily due to repayments of $22.1 million (net of proceeds from borrowings) under our two M/I Financial credit facilities, offset partially by $6.4 million in proceeds from the exercise of stock options during the first quarter of 2023. The cash used in financing activities in first quarter of 2022 was primarily due to repayments of $62.5 million (net of proceeds from borrowings) under our two M/I Financial credit facilities in addition to the repurchase of $15.4 million of our outstanding common shares during the first quarter of 2022.
On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (the “2021 Share Repurchase Program”). On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program, for a total of $200 million authorized for repurchases. As of March 31, 2023, the Company is authorized to repurchase an additional $93.1 million of outstanding common shares under the 2021 Share Repurchase Program (see Note 12 to our financial statements for more information).
The timing and amount of any future purchases under the 2021 Share Repurchase Program will be based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.
At March 31, 2023 and December 31, 2022, our ratio of homebuilding debt to capital was 24% and 25%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes, our 2028 Senior Notes, and Notes Payable-Other) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity. We believe that this ratio provides useful information for understanding our financial position and the leverage employed in our operations, and for comparing us with other homebuilders.
We fund our operations with cash flows from operating activities, including proceeds from home deliveries, land sales and the sale of mortgage loans. We believe that these sources of cash, along with our balance of unrestricted cash and borrowings available under our credit facilities, will be sufficient to fund our currently anticipated working capital needs, investment in land and land development, construction of homes, operating expenses, planned capital spending, and debt service requirements for at least the next twelve months. In addition, we routinely monitor current and anticipated operational and debt service requirements, financial market conditions, and credit relationships, and we may choose to seek additional capital by issuing new debt and/or equity securities or engaging in other financial transactions to strengthen our liquidity or our long-term capital structure. The financing needs of our homebuilding and financial services operations depend on anticipated sales and home delivery volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors. If we seek such additional capital or engage in such other financial transactions, there can be no assurance that we would be able to obtain such additional capital or consummate such other financial transactions on terms acceptable to us, if at all, and such additional equity or debt financing or other financial transactions could dilute the interests of our existing shareholders, add operational limitations and/or increase our interest costs.
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Included in the table below is a summary of our available sources of cash from the Credit Facility, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility as of March 31, 2023:

(In thousands) | Expiration Date | Outstanding Balance | Available Amount
Notes payable – homebuilding (a) | (a) | $ | — |  | $ | 576,421 |
Notes payable – financial services (b) | (b) | $ | 223,618 |  | $ | 2,520 |

(a)The available amount under the Credit Facility is computed in accordance with the borrowing base calculation under the Credit Facility, which applies various advance rates for different categories of inventory and totaled $1.69 billion of availability for additional senior debt at March 31, 2023. As a result, the full $650 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $73.6 million of letters of credit outstanding at March 31, 2023, leaving $576.4 million available. The Credit Facility has an expiration date of December 9, 2026.
(b)The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial’s warehousing agreements, which was $290 million as of March 31, 2023. The MIF Mortgage Warehousing Agreement has an expiration date of May 26, 2023.
Notes Payable - Homebuilding.
Homebuilding Credit Facility. The Credit Facility provides for an aggregate commitment amount of $650 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on December 9, 2026. Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options, including one, three, or six month adjusted term secured overnight financing rate (“SOFR”) (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio).
Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility also provides for a $250 million sub-facility for letters of credit. The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.36 billion at March 31, 2023 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity. In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries. The guarantors for the Credit Facility are the same subsidiaries that guarantee our 2030 Senior Notes and our 2028 Senior Notes.
As of March 31, 2023, the Company was in compliance with all covenants of the Credit Facility, including financial covenants. The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of March 31, 2023:

Financial Covenant |  | Covenant Requirement |  | Actual
|  | (Dollars in millions)
Consolidated Tangible Net Worth | ≥ | $ | 1,363.5 |  |  | $ | 2,098.9 |
Leverage Ratio | ≤ | 0.60 |  | 0.09
Interest Coverage Ratio | ≥ | 1.5 to 1.0 |  | 26.2 to 1.0
Investments in Unrestricted Subsidiaries and Joint Ventures | ≤ | $ | 629.7 |  |  | $ | 6.0 |
Unsold Housing Units and Model Homes | ≤ | 3,074 |  |  | 1,038 |

Notes Payable - Financial Services.
MIF Mortgage Warehousing Agreement. The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for a maximum borrowing availability of $200 million, which increased to $275 million from September 19, 2022 to November 13, 2022 and increased to
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$300 million from November 14, 2022 to February 6, 2023, which are periods of expected increases in the volume of mortgage originations. The MIF Mortgage Warehousing Agreement expires on May 26, 2023. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month BSBY rate (adjusting daily) (subject to a floor of 0.25%) plus a spread of 190 basis points.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Warehousing Agreement was set at approximately one year and is under consideration for extension annually by the participating lenders. We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of May 26, 2023, but we cannot provide any assurance that we will be able to obtain such an extension.
The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial that are being “warehoused” prior to their sale to investors. The MIF Mortgage Warehousing Agreement provides for limits with respect to certain loan types that can secure outstanding borrowings. There are currently no guarantors of the MIF Mortgage Warehousing Agreement.
As of March 31, 2023, there was $179.5 million outstanding under the MIF Mortgage Warehousing Agreement and M/I Financial was in compliance with all covenants thereunder. The financial covenants, as more fully described and defined in the MIF Mortgage Warehousing Agreement, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of March 31, 2023:

Financial Covenant |  | Covenant Requirement |  | Actual
|  | (Dollars in millions)
Leverage Ratio | ≤ | 12.0 to 1.0 |  | 7.3 to 1.0
Liquidity | ≥ | $ | 10.0 |  |  | $ | 28.4 |
Adjusted Net Income | > | $ | 0.0 |  |  | $ | 21.1 |
Tangible Net Worth | ≥ | $ | 20.0 |  |  | $ | 34.3 |

MIF Mortgage Repurchase Facility. The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial and is structured as a mortgage repurchase facility. The MIF Mortgage Repurchase Facility provides for a maximum borrowing availability of $90 million. The MIF Mortgage Repurchase Facility expires on October 23, 2023. As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility was set at approximately one year, and is under consideration annually by the participating lender.
M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the type of loan) plus 150 or 200 basis points depending on loan type. The covenants in the MIF Mortgage Repurchase Facility are substantially similar to the covenants in the MIF Mortgage Warehousing Agreement. The MIF Mortgage Repurchase Facility provides for limits with respect to certain loan types that can secure outstanding borrowings, which are substantially similar to the restrictions in the MIF Mortgage Warehousing Agreement. There are no guarantors of the MIF Mortgage Repurchase Facility. As of March 31, 2023, there was $44.1 million outstanding under the MIF Mortgage Repurchase Facility. M/I Financial was in compliance with all financial covenants under the MIF Mortgage Repurchase Facility as of March 31, 2023.
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Senior Notes.
3.95% Senior Notes. On August 23, 2021, the Company issued $300.0 million aggregate principal amount of 3.95% Senior Notes due 2030. The 2030 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2030 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur certain liens securing indebtedness without equally and ratably securing the 2030 Senior Notes and the guarantees thereof; enter into certain sale and leaseback transactions; and consolidate or merge with or into other companies, liquidate or sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
4.95% Senior Notes. On January 22, 2020, the Company issued $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028. The 2028 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2028 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
See Note 8 to our financial statements for more information regarding the 2030 Senior Notes and the 2028 Senior Notes.
Supplemental Financial Information.
As of March 31, 2023, M/I Homes, Inc. had $300.0 million aggregate principal amount of its 2030 Senior Notes and $400.0 million aggregate principal amount of its 2028 Senior Notes outstanding.
The 2030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of M/I Homes, Inc.’s subsidiaries (the “Subsidiary Guarantors”) with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by M/I Homes, Inc. or another subsidiary, and other subsidiaries designated as Unrestricted Subsidiaries (as defined in the indentures governing the 2030 Senior Notes and the 2028 Senior Notes), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indentures governing the 2030 Senior Notes and the 2028 Senior Notes (the “Non-Guarantor Subsidiaries”). The Subsidiary Guarantors of the 2030 Senior Notes, the 2028 Senior Notes and the Credit Facility are the same.
Each Subsidiary Guarantor is a direct or indirect 100%-owned subsidiary of M/I Homes, Inc. The guarantees are senior unsecured obligations of each Subsidiary Guarantor and rank equally in right of payment with all existing and future unsecured senior indebtedness of such Subsidiary Guarantor. The guarantees are effectively subordinated to any existing and future secured indebtedness of such Subsidiary Guarantor with respect to any assets comprising security or collateral for such indebtedness.
The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if: (1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in compliance with the terms of the applicable indenture; (2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc. and the Restricted Subsidiaries (as defined in the applicable Indenture) of such Subsidiary Guarantor have been sold or otherwise disposed of to any person other than M/I Homes, Inc. or a Restricted Subsidiary in a transaction in compliance with the terms of the applicable indenture; (3) the Subsidiary Guarantor is designated an Unrestricted Subsidiary (or otherwise ceases to be a Restricted Subsidiary (including by way of liquidation or merger)) in compliance with the terms of the applicable indenture; (4) M/I Homes, Inc. exercises its legal defeasance option or covenant defeasance option under the applicable indenture; or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.
The enforceability of the obligations of the Subsidiary Guarantors under their guarantees may be subject to review under applicable federal or state laws relating to fraudulent conveyance or transfer, voidable preference and similar laws affecting the rights of creditors generally. In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of the 2030 Senior Notes and the 2028 Senior Notes.
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The following tables present summarized financial information on a combined basis for M/I Homes, Inc. and the Subsidiary Guarantors. Transactions between M/I Homes, Inc. and the Subsidiary Guarantors have been eliminated and the summarized financial information does not reflect M/I Homes, Inc.’s or the Subsidiary Guarantors’ investment in, and equity in earnings from, the Non-Guarantor Subsidiaries.
Summarized Balance Sheet Data

(In thousands) | As of March 31, 2023 | As of December 31, 2022
Assets: |  |
Cash | $ | 511,598 |  | $ | 269,071 |
Investment in joint venture arrangements | $ | 43,378 |  | $ | 45,907 |
Amounts due from Non-Guarantor Subsidiaries | $ | 7,718 |  | $ | 15,772 |
Total assets | $ | 3,457,031 |  | $ | 3,379,932 |
Liabilities and Shareholders’ Equity |  |
Total liabilities | $ | 1,327,614 |  | $ | 1,359,951 |
Shareholders’ equity | $ | 2,129,417 |  | $ | 2,019,981 |

Summarized Statement of Income Data

| Three Months Ended
(In thousands) | March 31, 2023
Revenues | $ | 975,250 |
Land and housing costs | $ | 765,904 |
Selling, general and administrative expense | $ | 89,426 |
Income before income taxes | $ | 123,636 |
Net income | $ | 93,012 |

Weighted Average Borrowings. For the three months ended March 31, 2023 and 2022, our weighted average borrowings outstanding were $750.5 million and $802.2 million, respectively, with a weighted average interest rate of 5.26% and 4.72%, respectively. The decrease in our weighted average borrowings related to decreased borrowings under our two M/I Financial credit facilities during the first quarter of 2023 compared to the same period in 2022. The increase in our weighted average borrowing rate was due to higher interest rates on our credit facilities in 2023 compared to the prior year.
At both March 31, 2023 and December 31, 2022, we had no borrowings outstanding under the Credit Facility. Based on our currently anticipated spending on home construction, overhead expenses and land acquisition and development during the remainder of 2023, offset by expected cash receipts from home deliveries and other sources, we do not expect to incur borrowings under the Credit Facility during the remainder of 2023. To the extent we elect to borrow under the Credit Facility during the remainder of 2023, the actual amount borrowed and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries. The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions. The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments.
There were $73.6 million of letters of credit issued and outstanding under the Credit Facility at March 31, 2023. During the three months ended March 31, 2023, the average daily amount of letters of credit outstanding under the Credit Facility was $83.3 million and the maximum amount of letters of credit outstanding under the Credit Facility was $94.9 million.
At March 31, 2023, M/I Financial had $179.5 million outstanding under the MIF Mortgage Warehousing Agreement. During the three months ended March 31, 2023, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $20.0 million and the maximum amount outstanding was $200.9 million, which occurred during January 2023 while the temporary increase provision was in effect and the maximum borrowing availability was $300.0 million.
At March 31, 2023, M/I Financial had $44.1 million outstanding under the MIF Mortgage Repurchase Facility. During the three months ended March 31, 2023, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $30.5 million and the maximum amount outstanding was $47.1 million, which occurred during January 2023.
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Universal Shelf Registration. In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025. Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units. The timing and amount of offerings, if any, will depend on market and general business conditions.
INTEREST RATES AND INFLATION
Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of interest rates and inflation. The annual rate of inflation in the United States was approximately 5% in March 2023, as measured by the Consumer Price Index (CPI), down from 6.5% in December 2022 and down from 9.1% in June 2022 (which was the highest inflation rate experienced in 40 years). As a result of the high inflation rates during 2022, we experienced an increase in the costs of land, materials and labor that we have been able to pass along to the consumer. However, inflation has also reduced the purchasing power of potential homebuyers and has negatively impacted their ability and desire to buy a home and our ability to pass along our increased costs to our homebuyers.
Beginning in the second half of 2022, the pace of sales across the homebuilding industry declined significantly from the unprecedented levels experienced in the two years prior as a result of the sharp increase in mortgage interest rates from approximately 3% in December 2021 to around 6.5% at the end of 2022, the highest rates in over a decade, as well as significant inflation in the broader economy, and the substantial rise in home prices. Interest rates have increased even further in 2023 to approximately 7% in March 2023. These macroeconomic trends have pressured housing affordability, negatively impacted homebuyer sentiment and impacted the costs of financing land development activities and housing construction. The higher mortgage interest rates and the high rate of inflation are making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them. Rising interest rates, as well as increased materials and labor costs, can also reduce gross margins.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage Repurchase Facility, which permitted borrowings of up to $940 million as of March 31, 2023, subject to availability constraints. Additionally, M/I Financial is exposed to interest rate risk associated with its mortgage loan origination services.
Interest Rate Lock Commitments: Interest rate lock commitments (“IRLCs”) are extended to certain homebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a duration of less than six months; however, in certain markets, the duration could extend to nine months.
Some IRLCs are committed to a specific third party investor through the use of whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.
Forward Sales of Mortgage-Backed Securities: Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale: Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a whole loan contract or by FMBSs. The FMBSs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings.
The table below shows the notional amounts of our financial instruments at March 31, 2023 and December 31, 2022:

| March 31, |  | December 31,
Description of Financial Instrument (in thousands) | 2023 |  | 2022
Whole loan contracts and related committed IRLCs | $ | 1,683 |  |  | $ | — |
Uncommitted IRLCs | 250,065 |  |  | 262,529 |
FMBSs related to uncommitted IRLCs | 259,000 |  |  | 341,088 |
Whole loan contracts and related mortgage loans held for sale | 16,576 |  |  | 16,507 |
FMBSs related to mortgage loans held for sale | 212,000 |  |  | 232,518 |
Mortgage loans held for sale covered by FMBSs | 215,420 |  |  | 233,378 |

The table below shows the measurement of assets and liabilities at March 31, 2023 and December 31, 2022:

| March 31, |  | December 31,
Description of Financial Instrument (in thousands) | 2023 |  | 2022
Mortgage loans held for sale | $ | 226,629 |  |  | $ | 242,539 |
Forward sales of mortgage-backed securities | (1,770) |  |  | (3,005) |
Interest rate lock commitments | 4,284 |  |  | 787 |
Whole loan contracts | (757) |  |  | (377) |
Total | $ | 228,386 |  |  | $ | 239,944 |

The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31, |  |
Description (in thousands) | 2023 |  | 2022 |  |  |  |
Mortgage loans held for sale | $ | 3,975 |  |  | $ | (5,956) |  |  |  |  |
Forward sales of mortgage-backed securities | 1,235 |  |  | 13,560 |  |  |  |  |
Interest rate lock commitments | 3,498 |  |  | (7,229) |  |  |  |  |
Whole loan contracts | (380) |  |  | 125 |  |  |  |  |
Total gain recognized | $ | 8,328 |  |  | $ | 500 |  |  |  |  |

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The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of March 31, 2023. Because the MIF Mortgage Warehousing Agreement and MIF Mortgage Repurchase Facility are effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at March 31, 2023. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.

|  |  | Expected Cash Flows by Period |  | Fair Value
(Dollars in thousands) |  |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | Thereafter |  | Total |  | 3/31/2023
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans held for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed rate |  |  | $ | 233,446 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | $ | 233,446 |  |  | $ | 226,629 |
Weighted average interest rate |  |  | 5.69 | % |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5.69 | % |  |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt — fixed rate |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | $ | 700,000 |  |  | $ | 700,000 |  |  | $ | 625,000 |
Weighted average interest rate |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4.52 | % |  | 4.52 | % |  |
Short-term debt — variable rate |  |  | $ | 223,618 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | $ | 223,618 |  |  | $ | 223,618 |
Weighted average interest rate |  |  | 6.73 | % |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6.73 | % |  |

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ITEM 4: CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by the Company’s management, with the participation of the Company’s principal executive officer and principal financial officer. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company’s legal proceedings are discussed in Note 6 to the Company’s Consolidated Financial Statements.
Item 1A. Risk Factors
There have been no material changes to the risk factors appearing in our 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities - None.
(b) Use of Proceeds - Not Applicable.
(c) Purchases of Equity Securities
There were no purchases made by, or on behalf of, the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended) of the Company’s common shares during the three months ended March 31, 2023.
See Note 8 to our Condensed Consolidated Financial Statements above for more information regarding the limit imposed by the indenture governing our 2028 Senior Notes on our ability to pay dividends on, and repurchase, our common shares and any preferred shares of the Company then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indenture.
The timing, amount and other terms and conditions of any future repurchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements. See Note 12 to the Condensed Consolidated Financial Statements and the “Liquidity and Capital Resources” section above for more information regarding the 2021 Share Repurchase Program.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Mine Safety Disclosures - None.
Item 5. Other Information - None.
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Item 6. Exhibits
The exhibits required to be filed herewith are set forth below.

Exhibit Number |  | Description
22 |  | List of Subsidiary Guarantors. (Filed herewith.)
31.1 |  | Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 |  | Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 |  | Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 |  | Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101.INS |  | XBRL Instance Document. (Furnished herewith.)
101.SCH |  | XBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  |  | M/I Homes, Inc.
|  |  |  | (Registrant)
Date: |  | April 28, 2023 |  | By: | /s/ Robert H. Schottenstein
|  |  |  |  | Robert H. Schottenstein
|  |  |  |  | Chairman, Chief Executive Officer and President
|  |  |  |  | (Principal Executive Officer)
Date: |  | April 28, 2023 |  | By: | /s/ Ann Marie W. Hunker
|  |  |  |  | Ann Marie W. Hunker
|  |  |  |  | Vice President, Chief Accounting Officer and Controller
|  |  |  |  | (Principal Accounting Officer)

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